SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Advanced Health Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-------------------------------------
2) Form, Schedule or Registration Statement No.:
---------------
3) Filing Party:
-------------------------------------------------
4) Date Filed:
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<PAGE>
ADVANCED HEALTH CORPORATION
555 White Plains Road
Tarrytown, New York 10591
---------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Advanced Health Corporation, a Delaware corporation (the
"Company"), will be held at the Tarrytown Hilton, 455 South Broadway, Tarrytown,
New York 10591, on June 26, 1998, at 10:00 a.m. (local time) for the following
purposes:
a. to elect two directors of the Company to serve for a three-year term
and until their successors are duly elected and qualified;
b. to approve an amendment to the Company's 1995 Stock Option Plan
authorizing the issuance of options thereunder to purchase up to an additional
750,000 shares of Common Stock of the Company;
c. to ratify the selection of Arthur Andersen LLP as auditors for the
Company for the fiscal year ending December 31, 1998; and
d. to transact such other business as may properly come before the Meeting
or any adjournments thereof.
Only stockholders of record at the close of business on May 11, 1998, are
entitled to notice of and to vote at the Meeting.
By Order of the Board of Directors,
/s/ Jonathan Edelson
-----------------------------------
Jonathan Edelson, M.D.
Chairman of the Board and Chief Executive Officer
Tarrytown, New York
June 2, 1998
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE READ THE
ENCLOSED PROXY STATEMENT AND SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED FROM WITHIN THE UNITED
STATES.
<PAGE>
ADVANCED HEALTH CORPORATION
555 WHITE PLAINS ROAD
TARRYTOWN, NEW YORK 10591
------------------------------
PROXY STATEMENT
--------------------------------
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 26, 1998
This Proxy Statement is being mailed to you in connection with the
solicitation of proxies by the Board of Directors of Advanced Health
Corporation, a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders (the "Meeting"), to be held on June 26, 1998, at 10:00
a.m. (local time), at the Tarrytown Hilton, 455 South Broadway, Tarrytown, New
York 10591, and any adjournments thereof.
SOLICITATION OF PROXIES
All shares represented by duly executed proxies in the form enclosed
herewith received by the Company prior to the Meeting will be voted as
instructed therein at the Meeting. There are boxes on the proxy card to vote for
or to withhold authority to vote for the director nominees, and there are also
boxes to vote for or against or to abstain on the proposal to amend the
Company's 1995 Stock Option Plan and to ratify the selection of the Company's
auditors. If no instructions are given, the persons named in the accompanying
proxy intend to vote FOR the two nominees named herein as directors of the
Company, FOR the proposal to amend the Company's 1995 Stock Option Plan and FOR
ratification of the selection of the auditors named herein.
Any stockholder may revoke a previously executed proxy at any time prior
to its exercise by (i) delivering a later-dated proxy, (ii) giving written
notice of revocation to the Secretary of the Company at the address set forth
above at any time before such proxy is voted, or (iii) voting in person at the
Meeting. No proxy will be voted if the stockholder who executed such proxy
attends the Meeting and elects to vote in person. If a stockholder does not
intend to attend the Meeting, any proxy or notice should be returned to the
Company for receipt by the Company not later than the close of business on June
24, 1998.
A copy of the Annual Report of the Company containing audited financial
statements for the fiscal year ended December 31, 1997, is enclosed herewith.
This Proxy Statement and the form of proxy enclosed herewith were first mailed
to stockholders on or about June 2, 1998. The mailing address of the Company's
principal executive offices is 555 White Plains Road, Tarrytown, New York 10591.
<PAGE>
The Board of Directors does not know of any matter other than as set forth
herein that is expected to be presented for consideration at the Meeting.
However, if other matters properly come before the Meeting, the persons named in
the accompanying proxy (each of whom is an officer and employee of the Company)
intend to vote thereon in accordance with their judgment.
RECORD DATE, OUTSTANDING VOTING SECURITIES AND VOTES REQUIRED
The Company's Common Stock, $.01 par value per share ("Common Stock"), is
the only outstanding class of voting securities of the Company. The record date
for determining the holders of Common Stock entitled to vote on the actions to
be taken at the Meeting is the close of business on May 11, 1998 (the "Record
Date"). As of the Record Date, 10,009,694 shares of Common Stock were
outstanding. Each holder of Common Stock on the Record Date is entitled to cast
one vote per share at the Meeting. The Common Stock does not have cumulative
voting rights.
Holders of a majority of the shares entitled to vote must be present at
the Meeting, in person or by proxy, so that a quorum may be present for the
transaction of business. The affirmative vote of the holders of a majority of
the shares of Common Stock present at the Meeting, in person or by proxy, is
necessary for the election of directors of the Company, for amendment of the
Company's 1995 Stock Option Plan, and for ratification of the selection of
Arthur Andersen LLP as auditors for the Company.
ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three classes,
currently having terms expiring at the meeting of the Company's stockholders in
1998, 1999 and 2000, respectively. At the Meeting, two people will be elected to
serve as directors in the class whose three-year term expires at the annual
meeting of the Company's stockholders in the year 2001 and until their
successors have been duly elected and qualified as provided in the Company's
Restated Certificate of Incorporation and Restated By-laws.
Two people have consented to be nominated and, if elected, to serve as
directors of the Company. The nominees are presently members of the Company's
Board of Directors. Information about the nominees for director is set forth
below.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
JAMES T. CARNEY, age 54, has been a director of the Company since
September 1996. Mr. Carney has served as General Manager of Benefits
Administration for USX Corporation and Vice President of Administration for
United States Steel and Carnegie Pension Fund since 1989. Mr. Carney was named
General Attorney-Employee Benefits of USX Corporation in 1978, Senior General
Attorney-Employee Benefits and Workers' Compensation in 1985 and Senior General
Attorney-Commercial and Employee Relations for the U.S. Diversified Group in
1986.
2
<PAGE>
BARRY KUROKAWA, age 41, has been a director of the Company since March
1996. Since February 1996, Mr. Kurokawa has served as a Managing Director of
ProMed Asset Management, L.L.C. ("ProMed"), a private health care investment
management and services company, and as the President of Blackriver Capital
Management, Ltd., the general partner of ProMed and a consultant to INVESCO
Trust Company, a mutual fund company. From May 1992 to January 1996, he was
employed by INVESCO Trust Company as Senior Vice President and portfolio manager
of four health care funds managed by the firm. From July 1992 to January 1996,
Mr. Kurokawa was also the Vice President of Global Health Services, a closed-end
mutual fund. Before he joined INVESCO, Mr. Kurokawa served as Vice President
Equity Research and health care analyst at Trust Company of the West, an
investment management company, from July 1987 to April 1992.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE - TERM EXPIRING IN 1999
JONATHAN EDELSON, M.D., 38 has been the Chairman of the Board and Chief
Executive Officer of the Company since its inception in 1993. Dr. Edelson is a
board-certified internist. Prior to co-founding the Company, Dr. Edelson served
as the Chief Executive Officer of Physicians' Online, from August 1993 to
December 1994. Dr. Edelson was a Senior Vice President with ValueRx, Inc., the
prescription drug benefits management unit of Value Health, Inc., from October
1990 to June 1993. As a practicing physician prior to joining ValueRx, Inc., Dr.
Edelson founded Medical Decision Resources, Inc., a physician profiling and
education business, in March 1989, and served as its President through September
1990. Dr. Edelson attended Yale University, University of Chicago School of
Medicine and the Harvard School of Public Health.
ALAN B. MASAREK, age 37, has been a director of the Company since February
1998, has been President and Chief Operating Officer since September 1997 and
was Chief Operating Officer and Chief Financial Officer of the Company from
November 1995 to September 1997. Prior to joining the Company, from April 1995
to November 1995, Mr. Masarek was acting as an independent consultant. Mr.
Masarek was President and Chief Executive Officer of the Scovill Group, an
international manufacturer of fasteners and other component items with annual
revenues of approximately $125 million, from February 1994 to April 1995. Prior
to Scovill, Mr. Masarek was President of two divisions of the Bibb Company, a
diversified textile manufacturer, from December 1991 to February 1994. Prior to
that, Mr. Masarek worked for three years as a buyout specialist with the NTC
Group and for five years in the audit division of Arthur Andersen & Co. Mr.
Masarek, a CPA, holds an MBA from Harvard Business School.
3
<PAGE>
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE - TERM EXPIRING IN 2000.
JONATHAN LIEBER, age 31, has been a director of the Company since
September 1995. Mr. Lieber has served as an investment analyst focusing on
special situation investments, including the areas of healthcare, banking and
other consumer services of GeoCapital Corp., since July 1992. Mr. Lieber has
served since June 1992 as Vice President of Applewood Capital, where he
specializes in consumer services including healthcare, banking and finance, and
has served since June 1996 as a member of Wheatley Partners, LLC, the General
Partner of Wheatley Partners, L.P., an equity investment partnership.
Additionally, Mr. Lieber has served as a Vice President of Infomedia Management
Co., Inc., the management company for the general partner of the 21st Century
investment partnerships since February 1995. Prior to joining GeoCapital, Mr.
Lieber was employed as a research analyst at Gabelli & Co., an investment
management and brokerage firm, from 1990 to 1991.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS;
COMPENSATION OF DIRECTORS
During the fiscal year ended December 31, 1997, the Board of Directors met
eleven times and acted by unanimous written consent three times. The Company's
Compensation Committee, which met three times in 1997 and is comprised of
Messrs. Carney and Kurokawa, makes recommendations to the Board of Directors
with respect to general compensation and benefit levels, determines the
compensation and benefits for the Company's executive officers and administers
the Company's 1995 Stock Option Plan and Employee Stock Purchase Plan. The Audit
Committee, which met once in 1997 and is comprised of Messrs. Kurokawa and
Lieber, oversees the activities of the Company's independent auditors and
internal accounting controls. The Board of Directors does not have a standing
nominating committee or any committee performing a similar function. Each
director attended at least 75% of the aggregate of all Board meetings and all
meetings of committees of which he was a member held during 1997 while he was in
office.
Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
reimbursed for certain out-of-pocket expenses in connection with attendance at
Board and committee meetings. Directors of the Company including non-employee
directors, are eligible to receive options under the Company's 1995 Stock Option
Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of Common Stock as of May 1, 1998 with respect to (i) each person known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each of the Company's directors, (iii) certain executive officers of
the Company and (iv) all directors and officers as a group. Unless
4
<PAGE>
otherwise indicated, the address for each stockholder is c/o the Company, 555
White Plains Road, Tarrytown, New York 10591.
<TABLE>
<CAPTION>
SHARES OF
COMMON
NAME AND ADDRESS STOCK(1) PERCENT(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Resources
777 Mariners Island Blvd., San Mateo, CA 94403 .......................... 1,467,980 14.7
Wellington Management Company, LLP
75 State Street, Boston, Ma 02109 ....................................... 1,010,000 10.1
Putnam Investments
One Post Office Square, Boston, MA 02109 ................................ 1,014,500 10.1
RCM Capital Management
Four Embacadero Center, San Francisco, Ca 94111-4189 .................... 967,175 9.7
Pilgrim Baxter & Associates
825 Durportail Road, Wayne, PA 19087-5525 ............................... 939,800 9.4
The Capital Group Companies
333 South Hope Street, Los Angeles, CA 90071 .............................. 525,000 5.2
Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue, Milwaukee, WI 53202-4797 ..................... 524,500 5.2
Jonathan Edelson, MD (2) .................................................. 582,320 5.8
Alan B. Masarek (3) ....................................................... 62,981 *
Michael W. Rogers ......................................................... 0 *
Robert J. Alger (4) ....................................................... 44,223 *
Eddy W. Friedfeld ......................................................... 0 *
James Carney (5) .......................................................... 3,333 *
Barry Kurokawa (6) ........................................................ 15,005 *
Jonathan Lieber (7) ...................................................... 15,005 *
All directors and executive officers as a group (8 persons) (8) .......... 722,867 7.2
</TABLE>
* Represents less than 1% of the outstanding shares of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally includes
voting or investment power with respect to securities and includes options
exercisable within 60 days of May 1, 1998. Except as indicated by footnote, and
subject to community property laws where applicable, the persons named in the
table above have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them. Percentage of beneficial
ownership is based on 10,009,694 shares of Common Stock outstanding as of May 1,
1998.
(2) Includes currently exercisable options to purchase 167,096 shares of Common
Stock.
(3) Includes currently exercisable options to purchase 62,975 shares of Common
Stock.
(4) Includes currently exercisable options to purchase 44,223 shares of Common
Stock.
(5) Includes currently exercisable options to purchase 3,333 shares of Common
Stock.
(6) Includes currently exercisable options to purchase 15,005 shares of Common
Stock.
(7) Includes currently exercisable options to purchase 15,005 shares of Common
Stock.
(8) See notes (2), (3), (4), (5), (6), and (7).
5
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth the executive officers of the Company. See
"Election of Directors" for a description of the business experience of Dr.
Edelson and Mr. Masarek.
NAME AGE POSITION
Jonathan Edelson, M.D 38 Chairman, Chief Executive Officer and Director
Alan B. Masarek 37 President, Chief Operating Officer and Director
Michael W. Rogers 38 Executive Vice President, Chief Financial and
Corporate Development Officer
Robert J. Alger 42 Executive Vice President and Chief Information
Officer
Eddy W. Friedfeld 36 Vice President, General Counsel and Secretary
MICHAEL W. ROGERS joined the Company in February 1998 as Executive
Vice-President, Chief Financial and Corporate Development Officer. From 1995 to
1997, Mr. Rogers served as Vice President, Chief Financial Officer and Treasurer
of AutoImmune Inc., a biopharmaceutical company. From 1994 to 1995, he was Vice
President, Investment Banking at Lehman Brothers Inc. From 1990 to 1994, he was
employed by PaineWebber Incorporated, most recently as Vice President,
Investment Banking Division. From 1986 to 1988, Mr. Rogers was employed by
Fidelity Bank N.A. Mr. Rogers received a B.A. from Union College and his M.B.A.
from the University of Virginia.
ROBERT J. ALGER has been Executive Vice President and Chief Information
Officer of the Company since March 1998, and has been Vice President and Chief
Information Officer of the Company February 1995. Prior to joining the Company,
Mr. Alger was Chief Information Officer and Vice President of Information
Systems at Blue Shield of California, from December 1991 to February 1995, and a
partner at Scribner, Jackson & Associates, a technology consulting group, from
January 1986 to December 1991. Mr. Alger received his B.S. from California State
University -- Northridge.
EDDY W. FRIEDFELD has been, Vice President, General Counsel and Secretary
of the Company since August 1997. From 1993 to August 1997, he was Vice
President, Business Affairs, of Skysat Communications Network Corporation. Since
1986, Mr. Friedfeld has been an attorney specializing in the areas of corporate,
securities, technology, and healthcare law. Mr. Friedfeld holds a Juris Doctor
degree from New York University and a Bachelor of Arts degree from Columbia
College.
6
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following table sets forth a summary of the compensation of the
Company's Chief Executive Officer and each other executive officer of the
Company who earned in excess of $100,000 in annual salary and bonus during the
Company's fiscal year ended December 31, 1997 (collectively, the "Named
Executive Officers"), for services rendered in all capacities to the Company
during the Company's fiscal years ended December 31, 1997, 1996, and 1995.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards
<TABLE>
<CAPTION>
Securities Underlying
Options/SARs
Name and Principal Position Year ($)Salary (#)
- -------------------------------------------- ---- --------- ------------
<S> <C> <C> <C>
Jonathan Edelson, M.D, Chairman and 1997 $269,079 500,000 (1)
Chief Executive Officer 1996 220,224 --
1995 187,115 101,286
Alan B. Masarek, President and 1997 224,693 335,000 (2)
Chief Operating Officer 1996 200,198
1995 25,942 86,307
Michael W. Rogers, Executive Vice President, 1997 -- --
Chief Financial and Corporate Development
Officer
Robert J. Alger, Executive Vice President 1997 169,261 115,000 (3)
and Chief Information Officer 1996 154,854
1995 123,937 41,706
Eddy W. Friedfeld, Vice President, 1997 52,333 30,000
General Counsel and Secretary
</TABLE>
(1) includes 300,000 options subject to stockholder approval of the proposed
amendment to the Plan
(2) includes 185,000 options subject to stockholder approval of the proposed
amendment to the Plan
(3) includes 35,000 options subject to stockholder approval of the proposed
amendment to the Plan
7
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Individual Grants
- -----------------------------------------------------------------------------
Percent Of
Number Of Total
Securities Options/ Potential Realizable Value
Underlying SARs At Assumed Annual Rates
Options/ Granted To Exercise Of Stock Price Appreciation
SARs Employees Or Base For Option Term
Granted In Fiscal Price Expiration ---------------------------
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jonathan Edelson, MD 100,000 5.46% $ 10.87 1/10/2007 $ 683,608 $ 1,732,398
Jonathan Edelson, MD 400,000 21.82% 21.00 8/15/2007 5,282,715 13,387,437
Alan B. Masarek 110,000 6.00% 10.87 1/10/2007 751,969 1,905,638
Alan B. Masarek 225,000 12.28% 21.00 8/15/2007 2,971,527 7,530,433
Robert J. Alger 25,000 1.36% 10.87 1/10/2007 170,902 433,100
Robert J. Alger 40,000 2.18% 17.13 4/07/2007 430,919 1,092,032
Robert J. Alger 50,000 2.73% 21.00 8/15/2007 660,339 1,673,430
Eddy W. Friedfeld 30,000 1.64% 24.50 8/27/2007 291,204 899,058
</TABLE>
The following table sets forth certain information regarding options held at
December 31, 1997, by each of the Named Executive Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Fiscal Year-End Options at Fiscal Year-End (1)
-------------------------------------- ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Jonathan Edelson, M.D. 67,096 66,667 $601,848 $333,669
Alan B. Masarek 62,975 99,647 508,554 692,141
Michael W. Rogers -- -- -- --
Robert J. Alger 24,223 18,653 249,946 107,955
Eddy W. Friedfeld -- -- -- --
</TABLE>
(1) Value of unexercised in-the-money options is based on a value of $15.875 per
share of the Company's Common Stock, the fair market value of the Company's
Common Stock on December 31, 1997. Amounts reflected are based on the
assumed value minus the exercise price multiplied by the number of shares
subject to the option.
8
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's compensation program requires that a substantial portion of
any executive's compensation (including that of the Chief Executive Officer) be
tied to the profitability and performance of the Company. In addition, the
Company believes that tying an employee's compensation to stock performance
enables the Company to align employees' interests more closely with those of its
stockholders.
To implement these policies, the Company's executive compensation program
consists of two main elements: (i) annual compensation, consisting of base
salary and incentive bonuses; and (ii) long-term incentives that provide a
financial opportunity through stock options. Each component of compensation has
an integral role in the total executive compensation program.
The base salary component of annual compensation is based on competitive
salaries earned by executives with similar experience in companies similar in
size to the Company. Increases in base salary are the direct result of
individual achievements within a fiscal year.
The incentive bonus component of annual compensation is a function of an
individual's contributions relative to performance objectives and overall
Company profitability. The incentive bonus portion of executive compensation
reflects the Compensation Committee's view that, for senior executives, a
meaningful portion of compensation should be "at risk," providing a direct link
between pay, achievements and Company results for any year.
Long-term incentive compensation, rather than reflecting a single year's
results, is intended to focus management's attention on the Company's future.
The Compensation Committee believes strongly that executive pay should relate
directly to Company performance. Long-term incentives are intended to provide
financial opportunities for executives based on the Company's performance over a
number of years.
Long-term incentive compensation is achieved through grants of stock
options, which may be either incentive stock options ("ISOs") or stock options
that are non-qualified for Federal income tax purposes ("NSOs") under the
Company's 1995 Stock Option Plan (the "Option Plan"). Options provide executives
with the opportunity to buy and maintain an equity interest in the Company and
to share in the appreciation of the value of the Company's stock. Under the
Option Plan, the exercise price of ISOs may not be less than 100% of the fair
market value of the Common Stock at the time of grant and the exercise price of
NSOs is determined by the Compensation Committee at the time such options are
granted. Options granted under the Option Plan typically vest in equal annual
installments over a three-year period. These features result in (i) enhancing
the Company's ability to retain, for an extended period of time, those
individuals who are key to the creation of stockholder value and (ii) ensuring
that executives gain only when stockholders gain through appreciation in the
market price of the Company's Common Stock.
The base salary for 1997 for Jonathan Edelson, the Company's Chief
Executive Officer, was set by the Compensation Committee based on Dr. Edelson's
performance in 1996 and an analysis of
9
<PAGE>
the compensation for executives at a comparable level in the Company's industry.
Dr. Edelson's employment agreement provided for the payment of a base salary of
$300,000 effective September 1, 1997. Based on Dr. Edelson's performance in 1997
and the desire to provide appropriate incentives for future performance, the
Committee initially decided to grant Dr. Edelson a base salary increase, a cash
bonus and incentive stock options. At Dr. Edelson's request, in order to promote
investment in the future growth of the Company, the Compensation Committee
determined to grant Dr. Edelson additional incentive stock options in lieu of a
cash bonus. Guided by its analysis of industry compensation, the Compensation
Committee granted Dr. Edelson a base salary increase of $45,000 and 100,000
incentive stock options effective in January 1997.
James T. Carney
Barry Kurokawa
PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock
for the period from October 3, 1996 through December 31, 1997 to that of the
NASDAQ Index and an index based on the common stock of a peer group of the
following eight companies: American Oncology Resources, Inc. (AORI); FPA Medical
Management, Inc. (FPAM); Complete Management Inc. (CMI); Medpartners, Inc.
(MDM); Phycor, Inc. (PHYC); Phymatrix Corp. (PHMX); Physicians Reliance Network,
Inc. (PHYN); and Physicians Resource Group, Inc. (PRG). The graph assumes that
the value of the investment in Common Stock and each index was $100 at October
3, 1996, and that all dividends were re-invested. Stock price performances shown
in the graph are not necessarily indicative of future price performances.
Medcath, which was previously part of the Company's peer group, is in the
process of going private, and was therefore replaced by CMI.
Comparison of Cumulative Total Return Among Advanced Health Corporation, Peer
Group Companies Within the Company's Industry and NASDAQ National Market Index
[PERFORMANCE CHART OMITTED]
10
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (the "Employment
Agreements") with Jonathan Edelson, M.D., its Chairman and Chief Executive
Officer; Alan Masarek, its President and Chief Operating Officer; Michael W.
Rogers, its Executive Vice President, Chief Financial and Corporate Development
Officer; Robert J. Alger, its Executive Vice President and Chief Information
Officer, and Eddy W. Friedfeld, its Vice President, General Counsel, and
Secretary (each an "Executive"). The Employment Agreements provide that the
annual base salary of each of the Executives is at least: Dr. Edelson, $300,000;
Mr. Masarek, $250,000; Mr. Rogers $190,000; and Mr. Alger, $174,000, and Mr.
Friedfeld, $150,000. The Executives are also entitled to receive discretionary
bonuses.
The Employment Agreements generally provide for a three-year term that is
automatically renewable for successive one-year terms unless either party gives
prior written notice of its intent not to renew. The Employment Agreements set
forth the compensation arrangements and the employee fringe benefits provided by
the Company to each Executive. In addition, the Employment Agreements set forth
the compensation payable to an Executive in the event of a termination of the
Executive's employment by the Company. Generally, upon the termination of an
Executive's employment by the Company for cause, the Executive is entitled to
receive earned but unpaid salary and reimbursement for business expenses
incurred during the performance of the Employee's duties. If an Executive's
employment with the Company is terminated without cause, or within a specified
period after a change of control (as defined in the Employment Agreements), the
Executive is entitled to receive the amounts payable in the event of a
termination for cause plus a cash severance payment not to exceed the cash
compensation received by the Executive in the prior 12-month period and the
vesting of certain shares of Common Stock and options to purchase Common Stock
of the Company then held by such Executive. Each Employment Agreement contains a
non-compete provision that restricts an Executive from competing against the
Company for a period of one year following such Executive's termination of
employment with the Company.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
In 1996, 1997 and 1998, in accordance with the Company's Senior Executive
Loan Policy, which is administered by the Compensation Committee of the Board of
Directors, the Company made loans in the aggregate amounts of $415,000,
$167,407, and $60,000 to each of Dr. Edelson, Mr. Masarek, and Mr. Alger,
respectively. These loans are due three years from the date of grant with
interest payable monthly at a rate of 6% per annum.
In June 1997, the Company purchased approximately $500,000 of Series A
Preferred Stock issued by Caresoft, a corporation that, among other things,
develops chronic disease and patient compliance software. In addition, certain
of the Company's stockholders and other investors, including Wheatley Partners,
L.P., of which Jonathan Lieber, a director of the Company, serves as a member of
the general partner, certain funds advised by INVESCO Funds
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Group, Inc., and certain entities affiliated with ProMed Management, L.L.C., of
which Barry Kurokawa, a director of the Company, is the general partner,
purchased the following amounts of Caresoft's Series A Preferred Stock: $2.0
million, $1.0 million, and $500,000, respectively. Mr. Kurokawa serves on the
Board of Directors of Caresoft.
In January 1997, the Company and Physicians' Online, Inc. ("Physicians'
Online") announced an agreement to jointly market, distribute and operate the
first prescription writing service for physicians over the Internet. Physicians'
Online is a Delaware corporation of which approximately 5% of the currently
outstanding stock is owned by Dr. Edelson.
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. All transactions, including loans, between the
Company and its officers, directors and principal stockholders and their
affiliates are approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors of the Board of
Directors.
APPROVAL OF AMENDMENT TO 1995 STOCK OPTION PLAN
The Company has adopted the Amended and Restated 1995 Stock Option Plan,
which provides for the grant to directors, officers and employees of, and
consultants to, the Company and its subsidiaries of stock options, including
"incentive stock options" ("ISOs") intended to qualify as such under the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and stock options that are non-qualified for Federal income tax
purposes ("NSOs"). As of April 1, 1998, options to purchase an aggregate of
2,686,236 shares of Common Stock had been granted under the Option Plan, of
which 595,000 are subject to stockholder approval of the amendment to the Plan.
On June 16, 1997, the stockholders of the Company, at the Annual Meeting,
approved an amendment to the Option Plan increasing the number of shares of
Common Stock reserved for issuance under the Option Plan by 600,000 shares to
2,100,000 shares of Common Stock. On April 14, 1998, the Board of Directors of
the Company, subject to stockholder approval at the Meeting, approved an
amendment to the Option Plan increasing the number of shares of Common Stock
reserved for issuance under the Option Plan by 750,000 shares to 2,850,000
shares of Common Stock
The purpose of the Option Plan is to further the growth and success of the
Company by enabling directors, officers and employees of the Company and
independent consultants retained by the Company who have been selected by the
Compensation Committee to acquire Common Stock, thereby increasing their
personal interest in such growth and success and to provide a means of rewarding
outstanding service by them on the Company's behalf. As of April 1, 1998, there
were approximately 150 persons eligible to receive options under the Option
Plan.
The Option Plan is administered by the Compensation Committee comprised of
Messrs. Carney and Kurokawa. The Compensation Committee has full power and
authority to determine, with respect to the option grants, (i) the persons to
whom options are granted, (ii) the number of shares to be covered by each such
grant, (iii) the per share exercise price thereof, (iv) the status of
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the granted option as either an ISO or an NSO, (v) the time or times at which
each granted option is to become purchasable and (vi) the maximum term for which
the option may remain outstanding, which term shall in no event exceed 10 years
after the date of the grant. Options granted under the Option Plan typically
vest in equal annual installments over a three-year period.
The exercise price of ISOs granted under the Option Plan may not be less
than 100% of the fair market value of the Common Stock on the date of the grant.
With respect to any employee who owns stock possessing more than 10% of the
voting power of the outstanding capital stock of the Company, the exercise price
may not be less than 110% of the fair market value of such shares on the date of
grant, and the terms of such option may not exceed five years. The exercise
price of an NSO shall be an amount determined by the Compensation Committee in
its sole discretion.
Upon exercise of an option, payment in full of the purchase price either
in cash, check, in equivalently valued shares of Common Stock of the Company or
by any other means permitted by the Compensation Committee, is required before
the option shares are delivered. By allowing payment of the exercise price by
delivering shares of the Company's Common Stock, the Option Plan permits the
"pyramiding" of shares. Pyramiding occurs when the option holder in a series of
successive transactions uses the shares received upon the prior exercise of an
option to purchase additional shares under other outstanding options. An option
holder can thereby substantially increase his or her equity ownership in the
Company without a significant capital contribution.
The Board of Directors of the Company may from time to time adopt such
amendments to the Option Plan as it may deem appropriate, provided that
stockholder approval of such amendments must be obtained if required to comply
with regulations promulgated by the Securities and Exchange Commission under
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or with Section 422 of the Code or the regulations promulgated by the
Treasury Department thereunder. The Option Plan shall terminate on the tenth
anniversary of the date on which the Option Plan was adopted by the Board of
Directors.
Under the Option Plan, any optionee whose employment with the Company is
terminated for any reason, other than death or disability or a termination for
cause, may exercise his or her option, to the extent exercisable on the
effective date of such termination, at any time within 45 days after the date of
termination, provided such option has not expired on the date of such exercise.
In the event of the death or disability of the optionee, the option may be
exercised, to the extent exercisable on the date of death or disability, at any
time within 12 months by the person to whom the option shall have passed by will
or the laws of descent and distribution or the optionee, as the case may be. In
the event of termination of an optionee's employment for cause, the option
terminates immediately.
An NSO granted under the Option Plan is taxed in accordance with Section
83 of the Code and the regulations issued thereunder. The following general
rules are applicable to holders of such "non-statutory" options and to the
Company for Federal income tax purposes under existing law.
1) The optionee will not recognize any income on the grant of the
option pursuant to the Option Plan.
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2) The optionee will recognize ordinary compensation income at the time
of exercise of the option in an amount equal to the excess of the
fair market value of the shares acquired on the date of exercise,
over the exercise price thereof.
3) When the optionee sells the shares, he or she will recognize capital
gain or loss (assuming the shares are held as a capital asset) in an
amount equal to the difference between the fair market value of the
shares on the date of exercise and his or her selling price.
4) In general, the Company will be entitled to a tax deduction in the
year in which the ordinary compensation income based on exercise is
recognized by the optionee and in the same amount of such ordinary
compensation income recognized by the optionee, subject to
applicable tax withholding requirements.
5) Upon the exercise of an NSO, the Company is entitled to require as a
condition of delivery of the shares of Common Stock that the
optionee remit an amount sufficient to satisfy all Federal, state
and local withholding tax and employment tax requirements relating
thereto.
The following Federal income tax consequences are applicable to ISOs
granted and exercised pursuant to the Option Plan.
1) If the optionee does not own stock possessing more than 10% of the
total voting power of all classes of stock of the Company (or if the
optionee owns stock possessing more than 10% of the total voting
power of all classes of stock of the Company, the option price is at
least 110% of the fair market value of the shares on the date of
grant and the option by its terms is not exercisable more than five
years from the date of grant), no regular taxable income results to
the optionee upon the grant of an ISO or upon the issuance of shares
to him or her upon exercise of the option.
2) No tax deduction is allowed to the Company upon either the grant or
exercise of an ISO pursuant to the Option Plan.
3) If shares acquired upon exercise of an ISO are not disposed of (i)
within the two years following the date the option was granted or
(ii) within one year following the date the shares are transferred
to the optionee pursuant to the option exercise (the "Holding
Periods"), the difference between the amount realized on any
disposition of the shares thereafter and the exercise price will
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be treated as long-term capital gain or loss to the optionee.
4) If shares acquired upon exercise of an ISO are disposed of before
the expiration of either of the Holding Periods (a "disqualifying
disposition"), then the lesser of (i) any excess of the fair market
value of the shares at the time of exercise of the option over the
exercise price or (ii) the actual gain on disposition will be
treated as compensation to the optionee and will be taxed as
ordinary income in the taxable year in which the disposition occurs.
5) In any taxable year that an optionee recognizes compensation income
on a disqualifying disposition of an ISO, the Company will generally
be entitled to a corresponding deduction, subject to applicable tax
withholding requirements.
6) Any excess of the amount realized by the optionee on disposition
over the sum of (i) the exercise price and (ii) the amount of
ordinary income recognized under the above rules may be either
long-term or short-term capital gain, depending upon the time
elapsed between receipt and disposition of such shares.
7) An option will not be treated as an ISO to the extent the aggregate
fair market value for which ISOs are exercisable by an optionee for
the first time in a calendar year exceeds $100,000.
Under present accounting principles, neither the grant nor the exercise of
options granted with an exercise price equal to the fair market value of the
Common Stock will result in any charge to the Company's earnings. However, the
number of outstanding options, even if not granted at a discount, may be a
factor in determining the Company's reported earnings per share.
As of April 1, 1998, options to purchase an aggregate of 2,686,236 shares
of Common Stock had been granted under the Option Plan to an aggregate of 170
persons at a weighted average exercise price of $13.07 per share, including
601,286 to Dr. Edelson, 15,000 to Mr. Carney, 22,507 to Mr. Kurokawa, 22,507 to
Mr. Lieber, 421,036 to Mr. Masarek, 150,000 to Mr. Rogers, 156,706 to Mr. Alger,
and 30,000 to Mr. Friedfeld.
The Board of Directors adopted, subject to stockholder approval, the
amendment to the Option Plan increasing the number of shares of Common Stock
reserved for issuance under the Option Plan by 750,000, from 2,100,000 to
2,850,000, in order to permit the Company to continue to grant options, as
determined by the Compensation Committee, to directors, officers and employees
of, and consultants to, the Company to incent such persons to further the growth
and success of the Company and to reward outstanding service. The market value
of the unexercised 2,408,608 shares reserved for issuance under the Option Plan
is $36,430,196, based on the closing price of the Common Stock on April 1, 1998
($15 1/8). If the proposed amendment to the Option
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Plan is not approved by the stockholders, the Company's ability to utilize stock
options as a form of incentive compensation would be substantially limited.
Because the Compensation Committee has discretion under the Option Plan to grant
options thereunder and to determine the terms of such grants, it is not possible
to determine the dollar value or the number of shares that will be received by
any of the Company's directors, officers, employees or consultants under the
Option Plan as so amended. The vote of a majority of the shares of Common Stock
represented in person or by proxy at the Meeting is required to approve the
proposed amendment to the Option Plan. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE 1995 STOCK OPTION
PLAN.
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors of the Company has selected the firm of Arthur
Andersen LLP, independent certified public accountants, to serve as auditors for
the Company for the fiscal year ending December 31, 1998. Arthur Andersen LLP
has served as the Company's auditors since its inception. It is expected that a
representative of Arthur Andersen LLP will be present at the Meeting and will be
available to make a statement (if he or she desires to do so) and to respond to
appropriate questions at the Meeting. If the stockholders do not ratify the
selection of Arthur Andersen LLP, the Board of Directors may consider selection
of other independent certified public accountants to serve as independent
auditors, but no assurances can be made that the Board of Directors will do so
or that any other independent certified public accountants would be willing to
serve. The vote of a majority of the shares of Common Stock represented in
person or by proxy at the Meeting is required to ratify the selection of
auditors. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
RATIFICATION OF THIS SELECTION.
DISCLOSURE PURSUANT TO SECTION 16 OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who are beneficial owners of ten percent or more of the
Company's Common Stock, to file reports of ownership and changes in ownership of
the Company's securities with the Commission. Officers, directors and greater
than ten percent beneficial owners are required by applicable regulations to
furnish the Company with copies of all forms they file pursuant to Section
16(a).
Based solely upon a review of the copies of the forms furnished to the
Company, and written representations from certain reporting persons that no
Forms 5 were required, the Company believes that during the fiscal year ended
December 31, 1997, all filing requirements applicable to its officers, directors
and ten percent beneficial owners were complied with.
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STOCKHOLDER PROPOSALS
It is presently contemplated that the 1999 Annual Meeting of Stockholders
will be held on or about June 28, 1999. Proposals by stockholders intended for
inclusion in the proxy statement to be furnished to all stockholders entitled to
vote at the next annual meeting of the Company must be received at the Company's
principal executive offices not later than December 31, 1998. In order to
curtail controversy as to the date on which a proposal was received by the
Company, it is suggested that proponents submit their proposals by certified
mail, return receipt requested. Any such proposal must also meet the other
requirements of the rules of the Commission relating to stockholder proposals.
EXPENSES AND SOLICITATION
The Company will bear the cost of soliciting proxies, including expenses
in connection with the preparation and mailing of this Proxy Statement and all
papers which now accompany or may hereafter supplement it. Solicitation of
proxies will be primarily by mail. However, proxies may also be solicited by
directors, officers and regular employees of the Company (who will not be
specifically compensated for such services) by telephone or otherwise. Brokerage
houses and other custodians, nominees and fiduciaries will be requested to
forward proxies and proxy material to the beneficial owners of Common Stock, and
the Company will reimburse them for their expenses.
The Company will provide without charge to each person being solicited by
this Proxy Statement, upon written request, a copy of the Company's Form 10-K
for the fiscal year ended December 31, 1997, filed with the Commission. All such
requests should be directed to Advanced Health Corporation, 555 White Plains
Road, Tarrytown, New York 10591, Attention: Secretary.
By Order of the Board of Directors,
/s/ JONATHAN EDELSON, M.D.
--------------------------------------------------
Jonathan Edelson, M.D.
Chairman of the Board and Chief Executive Officer
Tarrytown, New York
June 2, 1998
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